GAS AND OIL PAKISTAN (PVT.) LIMITED VS The CUSTOMS APPELLATE TRIBUNAL, KARACHI, 2018 PTD-KARACHI-HIGH-COURT-SINDH 917 (2018)

Customs Act (IV of 1969)---

----Ss. 2(s), 156(2), 171, 178 & 196---Smuggling---Proof---Confiscation of oil tankers of diesel---Determination---Powers of customs authorities---Applicants were aggrieved of confiscation of oil tankers and diesel loaded therein on allegation of same being "smuggled" goods---Validity---No evidence was available before Appellate Tribunal to establish that tankers had replaced diesel filled in them at refinery and diesel was brought into or was being taken out of Pakistan---Evidence was on record that diesel was heading towards Punjab---Whether or not refinery was refining diesel at a flashpoint it was not authorized to, was beyond ambit of powers given to customs authorities---Even if refinery was refining oil at a flashpoint in violation of various laws, rules and regulations applicable to it even then it could not be concluded that applicants were involved in offence of smuggling as principals or agents of refinery---Negligence of refinery in submitting reports and presumption that 20 kilometer journey of tankers (from refinery to point where they were stopped) took much longer time than what it should have, was not enough to hold applicants guilty of an offence of smuggling---High Court directed authorities to return confiscated vehicles and diesel to applicants---Reference was answered accordingly.

Pervez Iqbal Kasi for Applicant.

Ghulam Hyder Shaikh for Respondent Nos.2 and 3.

Date of hearing: 15th September, 2017.

ORDER

OMAR SIAL, J.---We intend disposing of these two Reference Applications filed under the Customs Act, 1969 ("the Act") by a common judgment since they evolve out of the same incident, involve facts that are alike in all material respects, arise out of the same impugned order and raise the same questions of law.

1.Learned counsel for the applicants has referred to as many as twelve questions, said to arise out of the impugned order. However, with respect, we are of the view that it is only the following questions of law that can be said to arise out of the impugned order and the Reference Applications were heard on that basis:

(i)Whether in the facts and circumstances of the case the Tribunal erred in ignoring the irrefutable evidence that the impugned diesel (HSD) was locally manufactured by Messrs Byco Refinery located at Hub (near Karachi), which was lawfully purchased by the applicants through proper delivery orders?

(ii)Whether the locally manufactured products, purchased from a reputable refinery attracts the provisions of section-2(s) of the Customs Act, 1969 and whether such products can be charged for the offence of smuggling in context of the above provisions of law?

(iii)Whether the learned Appellate Tribunal erred by misreading evidence while holding in its impugned order that at the time of interception of the impugned HSD the Ministry of Petroleum and Natural Resources letter dated 25.06.2014 was still in the field?

(iv)Whether the seizure of HSD and oil tankers is lawful as the goods and vehicles were detained/seized on 09.07.2015, whereas the notice under section 171 of the Customs Act, 1969 was given to the applicants belatedly on 29.07.2015?

2.The Applicant in SCRA 471 of 2016 is Gas and Oil Pakistan Limited a company engaged in the business of oil marketing, storage, transportation and supply. The Applicant in SCRA 472 of 2016 is Mr. Mukammal Khan, who is engaged in the business of transportation of goods and is the owner of two oil tankers which have been confiscated by the department.

3.On 8-7-2015, two oil tankers (bearing registration numbers TLU-303 and TLS-528) transporting diesel oil from the Byco Petroleum Pakistan Limited Refinery in Hub ("Byco") to Port Qasim, Karachi for onward transportation to Punjab, were stopped and searched by officials of the Mochko police station, ostensibly on the suspicion that the tankers were laden with smuggled diesel.

4.On 9-7-2015, the oil tankers along with the diesel oil were handed over by the police to the Pakistan Customs ("the department"). Samples of oil from each tanker were taken and sent for chemical analysis to the Industrial Analytical Center (HEJ) of the University of Karachi "the laboratory"). The chemical analysis report revealed that the flashpoint of the diesel was not within the permissible range allocated to Byco and hence it was concluded that the diesel oil in both tankers was smuggled oil.

5.The oil tankers along with the diesel in them were seized by the department pursuant to section 168 of the Act for violation of sections 2(s), 156(2) and 178 of the Act. A show-cause notice under section 171 of the Act was issued to the applicants. The applicants responded to the show-cause notice but their defence did not find favour with the department. The Collector of Customs (Adjudication-I) made an order-in-original on 7-10-2015 against the applicants. The operative part of the order was as follows:

"In view of the above deliberations, the charges levelled in the Show-Cause Notice stand established, I, therefore, order for outright confiscation of seized 109,098 litres Diesel (HSD) along with Oil Tankers bearing Registration Nos. TLU-303 and TLS-528 for violations of sections 2(s), 16, 152(2), 157(1) and (2) and 178 of the Customs Act, 1969 Section 3(1) of Imports and Exports (Control) Act, 1950 read with relevant provisions of Petroleum Act, punishable under clauses 8,9, 89 and 90 of subsections (1) and (2) of section 156 of the Customs Act, 1969 read with clause (b) of SRO 499(I)/2009 dated 13.06.2009. A penalty of Rs. 500,000/- (Rupees five hundred thousand) is also imposed on the claimant for misuse of documents to cover smuggled diesel brought into the country."

6.Being aggrieved by the order-in-original, the applicants preferred an appeal to the learned Appellate Tribunal which after hearing the parties upheld the order-in-original on 30-5-2016. The operative part of the Tribunal's order was as follows:

"In view of the above we are not reluctant to conclude that 109098 liters HSD contained in two tank lorries bearing registration Nos. TLU-303 and TLS-528 was not refined by M/s. Byco Petroleum Pakistan Limited, Hub, instead the same is smuggled/non-duty paid. The aforementioned fact further establishes that the present management of the said company besides refining crude oil, is also indulging in illegal purchase and sale of smuggled/non-duty paid diesel. It is a serious matter which calls for legal action against then by the concerned departments including OGRA, OCAC and MCC Preventive, Karachi. The appellant also need the same treatment. After discussing the issue at some length, we do not find any reason to interfere with the impugned order-in-original and the same is upheld being a lawful Order. The instant appeal is dismissed being devoid of merit."

7.Being aggrieved by the order of the Appellate Tribunal, the same has been challenged in these proceedings. We have heard the learned counsel and also perused the record with their assistance. The learned counsel for the Applicant has argued that Gas and Oil Pakistan (Pvt.) Limited is a reputable company duly licensed by the Oil and Gas Regulatory Authority to carry out its operations. and has over 160 retail outlets in the country; that it validly and lawfully purchased from Byco, the diesel which has been seized by the department; that the diesel was filled at the Byco refinery in Karachi and was to be transferred to Faisalabad via the white oil pipeline, hence the question of smuggling does not arise; that the Tribunal has erred in not appreciating the fact that Byco confirmed that it had filled the tankers. On the other hand, the learned counsel for the department has supported the impugned order and has reiterated the grounds upon which the Tribunal reached its conclusions. Our conclusions are as follows.

8.Byco, at all times has confirmed that the tankers were filled at its refinery. The Daily Filling Report of 8-7-2015 issued by Byco shows that tanker numbers TLS 528 and TUL303 were filled at the refinery and Delivery Orders bearing numbers 80156243 and 80156244 were issued by it in this regard. The Delivery orders show that tanker number TLS 528 was out gated at 1:27:06 hours whereas tanker number TLS 303 was out gated at 1:41:41 hours on 8-7-2015. Vide a letter dated 14-7-2015. Byco also confirmed the authenticity of the said Delivery Orders, copies of which were produced to the department and the police when the tankers were stopped. searched and subsequently detained and confiscated.

9.After the tankers were detained, samples of diesel from both tankers were taken by the department and sent to the laboratory. In its report dated 23-7-2015, the laboratory reported that the diesel in tanker number TLS-528 and tanker number TLU-303 had flashpoints of 55 C and 56 C respectively. Byco submitted a Test Report dated 29-6-2015 bearing number LAB/533/2015 which showed that Byco was refining oil at 66 C. The lower flashpoint of the diesel in the tankers as compared to the flashpoint of diesel being refined by Byco, was one of the two reasons (the other being that it took nearly 7 hours for the tankers to cover a distance of 20 kms) that led the department to conclude that the diesel in the tankers was smuggled and hence the confiscation of the diesel and the tankers and imposition of a Rs. 500,000 fine.

10.In a letter dated 3-5-2016, Byco while responding to queries made by the learned Appellate Tribunal, in brief submitted that:

(a)the two oil tankers were filled at its refinery.

(b)that the test report bearing number LAB/533/2015 dated 29-6-2015 (showing a flashpoint of 66 C) which they had submitted as the test report for the diesel in the two tankers was in fact erroneously submitted by it and that the correct test report bore the number LAB/561/2015 dated 7-7-2015. (This test report showed that Byco was refining diesel with a 57 C flashpoint)

(c)that in accordance with the directions of the Ministry of Petroleum vide its letter dated 25-6-2015, the flashpoint of the diesel Byco could refine had been revised to 54 C with effect from 1-7-2015. The tankers were filled on 8-7-2015.

11.Upon a direction from the learned Tribunal that Byco submit the letter of the Ministry of Petroleum dated 25-6-2015 (mentioned in para 10(c) above), it transpired that the said letter was not issued on 25-6-2015 but on 26-6-2014. This was the second mistake that Byco made. In order to answer the second question of law in these proceedings, it is important to reproduce the letter of the Ministry dated 25-6-2014 (that Byco had initially stated was issued on 25-6-2015). This letter states:

"I am directed to refer to subject cited above and to say that in order to avoid shortage of SKO and Aviation Fuel in Southern part of the country, it has been decided by the Competent Authority that National Refinery Limited, Pakistan Refinery Limited, Byco (I & II) and Enar (I & II) will produce 66 C Flash Point High Speed Diesel w.e.f. 1st July, 2014 to 30th June, 2015."

12.The mistake of wrongly stating the year of the letter was confirmed by Byco vide its letter dated 30-5-2016. This led the learned Tribunal to conclude that Byco was authorized to refine diesel to a flashpoint of 66 C (as the letter of the Ministry instructed Byco to refine diesel to a flashpoint of 66 C from 1-7-2014 to 30-6-2015) and the Test Report bearing number LAB/533/2015 dated 29-6-2015 showed a flashpoint of 66 C, which Test Report Byco previously admitted as being erroneously submitted by it. The tankers were seized on 8-7-2015, and as no other letter of authorization was produced to show that the 66 C flashpoint had been revised to 57 C flashpoint, the learned Tribunal also concluded that the Ministry's letter was in the field when the seizure was made even though the authorization to refine diesel at a flashpoint of 66 C had ended on 30-6-2015.

13.We have observed that not once from the time that the tankers were seized has Byco declined to acknowledge that the tankers were filled at its refinery. At all times Byco has also supported the stance that at the relevant time, the authorized flashpoint was 57 C (although this flashpoint is marginally, i.e., a couple of degrees, higher than the flashpoint of the diesel found in the tankers). It has also verified the Delivery Orders and has provided all necessary documents to prove the same. That having been said, we also observe that Byco has been careless in its communications with the Tribunal. The present case seems to a great extent an outcome of this lack or ordinary care. However, we also observe that Byco was not a party to the proceedings before the learned Tribunal and thus was never given an opportunity to explain its position in person.

14.The case before the department was whether or not the diesel in the tankers was smuggled. Section 2(s) of the Act defines the word "smuggle" as follows:

"smuggle" means to bring into or take out of Pakistan, in breach of any prohibition or restriction for the time being in force, or en route pilferage of transit goods or evading payment of customs-duties or taxes leviable thereon.-

(i)gold bullion, silver bullion, platinum, Palladium, radium, precious stones, antiques, currency, narcotics and narcotic and psychotropic substances; or

(ii)manufactures of gold or silver or platinum or palladium or radium or precious stones, and any other goods notified by the Federal Government in the official Gazette, which, in each case, exceed one hundred and fitly thousand rupees in value; or

(iii)any goods by any route other than a route declared under section 9 or 10 or from any place other than a customs-station

and includes an attempt, abetment or connivance of so bringing in or taking out of such goods; and all cognate words and expressions shall be construed accordingly;"

15.There was no evidence available before the Tribunal to establish that the tankers had replaced the diesel filled in them at the Byco refinery. There was no evidence that the diesel had been brought into or was being taken out of Pakistan. In fact there was evidence that the diesel was heading towards Punjab. Whether or not Byco was refining diesel at a flashpoint it was not authorized to was beyond the ambit of the powers given to the department. Even if Byco was refining oil at a flashpoint in violation of various laws, rules and regulations applicable to it, by no stretch of imagination could it be concluded that the petitioners were involved in the offence of smuggling, as principals or as agents of Byco. Byco's negligence in submitting reports and the presumption that the 20 kilometer journey of the tankers (from the refinery to the point where they were stopped) took much longer than what it should have, in our opinion, is not enough to hold the petitioners guilty of an offence of smuggling.

16.The questions of law are thus answered as follows:

(i)The evidence that was produced supported the applicants' plea that the diesel the tankers carried had been filled at the Byco refinery. The first question is answered in favour of the applicants and against the department.

(ii)Locally purchased diesel could very well be the subject of the offence of smuggling provided the circumstances fell within the definition of "smuggle" in section 2(s) of the Act. In the current case, they did not. The second question is therefore also answered in favour of the applicants and against the department.

(iii)It cannot be said that the learned Tribunal erred in holding that the Ministry of Petroleum and Natural Resources letter dated 25.06.2014 was still in the field at the relevant time as no evidence to the contrary was provided. However, whether or not diesel was being refined in accordance with Government's directives does not mean that the petitioners were "smuggling" the said diesel. The third question is also answered in favour of the applicants and against the department.

(iv)In view of our opinion that there was no evidence to establish any smuggling, this question need not be answered.

17.We accordingly allow the References and set aside the order of the learned Tribunal. The confiscated vehicles and diesel should be returned to the applicants forthwith. The Office is directed to send a copy of this judgment to the Tribunal under seal of the Court pursuant to section 196(5) of the Customs Act.

MH/G-11/Sindh Reference allowed.